AM Best, the credit rating agency, says reinsurers continued to achieve returns above their cost of capital in 2025, extending a trend seen over the previous two years.
The company attributed the performance to stronger underwriting results, following earlier changes to pricing and reductions in the level of risk held within reinsurance portfolios.
AM Best reported that the global reinsurance sector’s weighted average cost of capital increased to 8.23% in 2025, compared with 7.67% in 2024. The figure rose again during the first quarter of 2026, reaching 8.63%.
Despite the continued strength of reinsurers’ financial performance, AM Best said conditions in the reinsurance market have become softer. The company pointed to the substantial amount of capital and available capacity in the market as key factors behind the trend, which it said gathered pace in 2026.
AM Best industry analyst Helen Andersen said changes made by reinsurers to programme structures have continued to support underwriting performance, even as market conditions have become less favourable.
“Reinsurers’ changes to programme structures, such as tightened terms and conditions and a sharp increase in attachment points, have proven durable despite the softening market,” added Andersen. “The measures have allowed reinsurers to weather the increased frequency and severity of secondary perils.”
AM Best said reinsurers recorded particularly strong results in 2025. The median return on equity (ROE) reached 16.3%, placing it only slightly below the record level recorded in 2023.
The company also reported that the cost of equity increased to 9.6% in 2025, marking the fourth consecutive annual rise. AM Best said this increase pushed up reinsurers’ overall cost of capital, despite a decline in interest rates. Reinsurers that combine long-term strategic planning with effective tactical decision-making and robust risk management can achieve or surpass their return targets.
AM Best said improvements in risk management, greater use of technology and the growing role of alternative capital have helped reduce some of the historical swings associated with the reinsurance cycle.
The company highlighted that reinsurers will need to continue adjusting their strategies as market conditions change if they are to maintain returns at or above their cost of capital. AM Best explained that this means combining short-term decisions, such as pursuing opportunities when pricing is attractive and reducing activity when terms become less favourable, with longer-term priorities.
These priorities include maintaining relationships with clients, developing specialist expertise and establishing a reputation for being dependable over time, according to AM Best.
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